Correlation Between Exelon and FirstEnergy

Can any of the company-specific risk be diversified away by investing in both Exelon and FirstEnergy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Exelon and FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exelon and FirstEnergy, you can compare the effects of market volatilities on Exelon and FirstEnergy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Exelon with a short position of FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exelon and FirstEnergy.

Diversification Opportunities for Exelon and FirstEnergy

0.81

Correlation Coefficient

Exelon  FirstEnergy

Very poor diversification

The 3 months correlation between Exelon and FirstEnergy is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Exelon and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Exelon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Exelon are associated (or correlated) with FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of Exelon i.e., Exelon and FirstEnergy go up and down completely randomly.

Pair Corralation between Exelon and FirstEnergy

Considering the 90-day investment horizon Exelon is expected to generate 1.96 times less return on investment than FirstEnergy. But when comparing it to its historical volatility, Exelon is 1.01 times less risky than FirstEnergy. It trades about 0.19 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  3,780  in FirstEnergy on February 21, 2024 and sell it today you would earn a total of  226.00  from holding FirstEnergy or generate 5.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Exelon  vs.  FirstEnergy

Exelon

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Exelon may actually be approaching a critical reversion point that can send shares even higher in June 2024.

FirstEnergy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, FirstEnergy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Exelon and FirstEnergy

The main advantage of trading using opposite Exelon and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exelon position performs unexpectedly, FirstEnergy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in FirstEnergy will offset losses from the drop in FirstEnergy's long position.

The idea behind Exelon and FirstEnergy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.